FADA seeks rollback of decision to deny input tax credit on all stock

Under GST, a government-appointed panel has made provisions for dealers to only claim 60% input tax credit on spares which have been in stock for less than a year.Sharmistha Mukherjee | ET Bureau | June 27, 2017, 08:26 IST

NEW DELHI: Automobile dealers have pleaded with the government to roll back its decision to deny input tax credit on spares and vehicles lying in stockyards for more than a year under the goods and services tax (GST) regime, saying such a rule will inflict significant losses on them.

Under GST, a government-appointed panel has made provisions for dealers to only claim 60% input tax credit on spares which have been in stock for less than a year. The Federation of Automobile Dealers Association (FADA), the apex body of automobile dealers in the country, has written to the government seeking relief on this front.

While the government is going full throttle to roll out the new indirect tax regime on July 1, the automobile industry is facing some hurdles in the transitioning. As far as vehicles are concerned, while the government has made provisions for refunding excise duty on unsold stocks beyond July 1, there is no provision for refunding central sales tax, infra cess and national calamity contingent duty. The loss on non-credit of tax (CST, NCCD, infra cess) amounts to anywhere between 3% and 7% of the cost of a vehicle, according to experts. As per industry estimates, there are over 300,000 vehicles lying in stockyards across the country.

“The biggest challenge for dealers during the transition is not getting input credit for the entire stock,” said Nikunj Sanghi, director (international affairs and global relations) at FADA. “Dealers will not get any input credit for vehicles more than a year in stock and more importantly even for spares which are with them for over one year.” As per estimates, car dealers have, on average, Rs 2-3 crore worth of spares in inventory. About 20-50% of these stocks could date back to over a year, depending on the age of the dealership and the products handled.

Dealers are required to ensure availability of spares, fast as well as slow-moving ones, for customers’ convenience. “They (dealers) have already paid taxes on these parts to the government. We are representing before the GST Council so that input is given on these components,” Sanghi said. Adealer with a Mumbai-based carmaker said, “Product lifecycles in India have reduced drastically.

New models, variants, refreshes come in to the market every six months. We have to ensure availability of a complete range of spares and some of these would be over a year old. Neither the government nor the manufacturers are providing any support for such stocks.” If input tax credit is not provided for such stocks it would result in substantial losses for around 10,000 automobile dealers across the country, according to FADA.

No input credit on vehicles that have been more than a year in stock would also trigger distress sale in the market, a second dealer partner with a leading automobile manufacturer said, requesting anonymity. “There are some slow-moving vehicles, some models which are now out of production in stock with dealers across the country. While the numbers may not be large, in value terms, dealers would have to absorb substantial losses as they cannot claim any input credit on these vehicles. Manufacturers, too, have said they will not extend financial support on these models,” he said.

Industry experts said the challenges in the aftermarket will precipitate a drop in wholesale during the month. “On the supplier side, for firms which have heavy exposure in the aftermarket, wholesale is expected to decline by 20-25%,” said VG Ramakrishnan, managing partner at Avanteum Advisors LLP. Vinnie Mehta, director-general of Automotive Component Manufacturers’ Association (ACMA), said, “As in several other sectors, there are challenges over inventory carry over. The primary aim this month is to liquidate existing stocks, which may impact wholesales. But suppliers are gearing up so that there is no disruption in production post the transition.”